GM in Asian Auto Market

By Michael R. Czinkota and Charles J. Skuba

The U.S. government now owns 60 percent of General Motors. Some say that the company really belongs to the taxpayers ― but just have them try to sell some of ``their'' GM shares ― they'll quickly see how limited their ownership rights are.

U.S. officials now have a new mandate that is familiar to business executives: meet increased sales goals in an ever-expanding sales territory. If GM is to succeed, global sales and operations, not just American, must be a priority.

In an industry that is among the most competitive in the world, GM's future will inevitably be linked to global markets and how well it does as an Asian car company.

Of course, this is not lost on GM. Indeed, at the same time as the firm filed for Chapter 11 protection, CEO Fritz Henderson said that ``China remains a key part of our business. Our ventures in China are a critical part of the new GM ― unequivocally. Our business in China continues to grow at a very fast, even torrid pace and remains a critical part of GM going forward.''

As GM pares down its presence in Europe with the sales of Opel and Saab, the company has expansive ambitions in Asia.

China is GM's largest growth market. The firm has more than 20,000 employees, enjoys booming sales and occupies the leading position among global automakers with market share of about 12 percent in the region.

GM has numerous Chinese joint ventures including major deals with Shanghai Automotive (SAIC) and Wuling to sell Chevrolet, Buick and Cadillac as well as Wuling-brand light commercial vehicles. The China Daily reported that GM plans to open a new factory and double sales in China over the next five years.

Another significant Asian market for the new GM will be South Korea, where it is the majority owner of GM Daewoo Auto & Technology, Korea's third largest automaker.

While GM Daewoo has struggled with the global downturn in auto sales and is seeking support from the Korea Development Bank, GM executives have stated that the company plans to expand its GM Korean operations.

Elsewhere in Asia, auto markets have been more depressed by the economic crisis, yet GM plans for growth throughout the region with emphasis on Thailand and India. In fact, GM is seeking local financing in Southeast Asia to expand operations.

In India, look for GM to engage Tata's Nano in competition with its own version of a mini car. India should be a hot market as the country continues its strong economic growth.

With 95 percent of the world's customers living outside the United States, GM must look overseas for long-term expansion.

The new GM ad campaign promises that ``GM gets down to business'' with the ``rebirth of the American car.'' But this rebirth better be with Asian consumers in mind.

As GM searches for innovations in the small car market, Korea, China and India will be the most logical sources of cutting-edge products.

GM's long-term success in Asia, and perhaps globally, will likely come from four-cylinder, fuel-efficient cars developed by GM Daewoo or in China at GM's Pan Asia Technical Automotive Centre (PATAC) joint venture with SAIC.

The growing needs of Asian markets will require adjustments in production capacity and product. Consistent with the product cycle theory, over time, established products are produced in new locations with more local advantages.

Asian production sites with lower cost structures and locally based R&D are essential for the new GM to fulfill its mission. To succeed in its post-bankruptcy life, GM will need to rationalize its global production platform to maximize economies of scale and eliminate waste.

While GM will need to temper its ambitions to avoid mistakes of the past, it must compete globally or be marginalized as a niche competitor. However, global efficiency becomes particularly sensitive if GM uses overseas production facilities to import cars to the United States.

Indeed, the U.S. administration's rescue plan for GM is contingent upon producing more cars in the United States, even as it closes factories and eliminates jobs at home.

Yet, inefficient production is one of the principal reasons for GM's Chapter 11 filing and should not be championed under the guise of protecting American jobs.

Utah Gov. Jon M. Huntsman, the designated U.S. ambassador to China, has his work cut out. He will be confronted with competitive realism while supporting American idealism. But he's the right man for a tough job.

The Obama administration may not intend to be an active manager of the new GM but its policies on trade, foreign investment and taxation will shape the company's future.

Government policies must allow and even encourage GM to be competitive not just at home, but also abroad. Don't expect administration officials to go on commission, but, whether they like it or not, they have a new obligation to help GM increase sales. Asia is the smart place to look.

Michael Czinkota researches international marketing issues at Georgetown University in the United States and the University of Birmingham in the United Kingdom. Charles Skuba teaches international business and marketing at Georgetown University.